Monthly Archives: October 2014

I’m a failure; but so are most people.

Me? Big time failure!

Me? Big time failure!

I worked for 4 companies throughout my corporate career and never lasted longer than 4 years at any of them. My failure to be able to “tolerate” simply doing something because someone said it should be done is what routinely led to my departure.

I’ve failed, many times over, to keep my weight in check. While I’m nowhere near obese, I am also nowhere near my svelte days when I was on the football team in high school or when I rode as a bike messenger. I get the weight off by riding hundreds of miles on my bike, and then manage to gain it back months (sometimes years) later.  Blame this failure on my immense love of food and inability to control my desire to feed my face!

After three years of running this company night and day, I’ve failed to achieve the revenue or profit goals that we outlined in our original business plan. What’s worse is that people would consider me a  “smart” finance person and I’m supposed to be good at numbers right?  So why then could I not accurately project the revenues and expenses of this company over that three year period? Oh yeah, because this was uncharted territory for me – having to figure out exactly how many clients you get when you spend $X on a marketing campaign. Better yet, figuring out which marketing campaign even works!

On top of the above, I’ve failed my family for years. I’ve failed to spend as much time with them as I both want and should. I’ve failed to be there when they’ve rung me on the phone and I thought “I’m busy with something, I’ll just call them back later.” I’ve failed my wife and daughter by not giving them all the hugs, kisses and love that I can possibly muster. With all these failures, I’m surprised that I am even loved at all.

So why do I keep failing? Well, I wrote about that extensively in this post so I won’t rehash any of it. But you want to know the interesting thing? Most people are failures.  Let me explain.

Failure is defined as the state or condition of not meeting a desirable or intended objective, and may be viewed as the opposite of success. The key component in the preceding sentence is “may be” and should not be misconstrued with “is.” In other words, failure is simply not meeting an objective. This doesn’t mean that you are not succeeding or will not achieve your goal at some point. The key in moving from failure to success can be summed up in the following quotes:

“I can accept failure, everyone fails at something. But I can’t accept not trying.” – Michael Jordan

“Success consists of going from failure to failure without loss of enthusiasm.” – Winston Churchill

“Only those who dare to fail greatly can ever achieve greatly.” – Robert F. Kennedy

“Giving up is the only sure way to fail.” – Gena Showalter

“Failure should be our teacher, not our undertaker. Failure is delay, not defeat. It is a temporary detour, not a dead end. Failure is something we can avoid only by saying nothing, doing nothing, and being nothing.” – Denis Waitley

“I have not failed. I’ve just found 10,000 ways that won’t work.” – Thomas A. Edison

With that said, yes, I am a failure.  Most of us are failures.  But mark my word, at some point in the future someone will say “Jared Rogers a failure? That guy has to be one of the most successful people I know!” Yet, they won’t be saying this because I was a failure; they’ll be saying it because I didn’t quit.

Until next time…

Understanding The Gift Tax

Gift Tax

So a few weeks ago, someone posed the following question to us regarding gift giving:

Can you please explain how the gift-tax system works and what its rationale is? I know that if I give someone a gift below a certain amount, then I don’t have to pay gift tax. But what happens if I give over that amount? My contribution was made with after-tax money. Why do I have to pay a gift tax? It just feels like I am being double taxed.

We thought it was a good question, so let’s explain what the so-called gift tax is really all about.

Lifetime Exclusion
Our current tax system essentially treats the transfer of wealth the same whether the transfer was made during the donor’s lifetime or posthumously.  However, the IRS grants taxpayers a life time exclusion (also called the lifetime exemption) that allows them to give away $5,340,000 (in 2014) at either stage or a combination of the two.  Thus, a taxpayer can give up to this amount during their lifetime or after death without either the recipient or the donor owing any tax on that transfer.

Annual Exclusion
A common source of misunderstanding surrounding gift tax has to do with how the lifetime exclusion amount relates to the annual exclusion.  The annual exclusion allows a taxpayer to give $14,000 (in 2014) to another person per year without it counting against the lifetime exemption.  You and your spouse can combine this annual exclusion to double the size of the gift to a done if you would like (up to $28,000).  So what happens when you give more than the above amounts?  Well, you then have to deduct the difference against your $5,340,000 lifetime exclusion.  Just how do you do this?

You, or your estate if the taxpayer is deceased, must file Form 709 United States Gift Tax Return by the same date that your Individual Tax Return is due (April 15th).  You will owe no tax on your gifts unless you have already given more than the lifetime exclusion. Once you file Form 709, the government notes what your remaining exemption is. The same process is followed every time you exceed the annual exclusion limit (e.g. $14,000). Then at your death, any bequest beyond the remaining limit is subject to taxation.  Thus, it’s not until you reach this point that your gift is subject to double taxation so to speak.

If you want more information on the gift tax and reporting, check out this nifty little IRS site
on the topic.  Still have questions?  Why not give us a call or shoot us an email via our contact information below and we’d be happy to chat with you.

Restricted Stock Unit (RSU) Taxation

Employee compensation is a major expenditure for most corporations.  As such, some firms find it easier to pay, at least a portion of, their employees’ compensation in the form of stock.  This post will discuss the tax implications one should be aware of if they are the recipient of Restricted Stock Units or RSUs.

How do Restricted Stock Unit Plans work?
A RSU represents an unsecured promise by the employer to grant a set number of shares of stock to the employee upon the completion of the vesting schedule.  Once an employee is granted RSUs, the employee must decide whether to accept or decline the grant. If the employee accepts the grant, they may be required to pay the employer a purchase price for the grant.

After accepting a grant and providing payment (if applicable), the employee must wait until the grant vests.  Stock is not issued at the time of the grant.   However, once the recipient of a unit satisfies the vesting requirement, the company distributes shares, or the cash equivalent of the number of shares used to value the unit.

Income Tax Treatment
The following example reflects a salary of $65,000, a grant of 400 shares of hypothetical XYZ Company stock and a sale of said stock one day after vesting.

Step 1: Compensation Income From The Vesting Of The RSU Award
Under normal federal income tax rules, an employee receiving Restricted Stock Units is not taxed at the time of the grant. Instead, the employee is taxed at vesting (when the restrictions lapse) unless the employee chooses to defer receipt of the cash or shares. In these circumstances, the employee will have compensation income or “ordinary income” in tax parlance.  The amount of income subject to tax is the difference between the fair market value of the grant at the time of vesting or distribution, minus the amount paid for the grant (if any).

In our example, the compensation is calculated as 400 shares vesting times the $20 per share fair market price on that date.  The employee now has compensation income of $8,000.  This will also be the stock basis of said shares for use in the next step.  On the employees W2, this $8,000 will be added to the $65,000 in wage compensation and taxed at “ordinary income’ tax rates.

Step 2: Calculating Capital Gains or Losses
For grants that pay in actual shares, the employee’s tax holding period begins at the time of distribution (which may or may not coincide with vesting depending on the plan rules), and the employee’s tax basis is equal to the amount paid for the stock plus the amount included as ordinary compensation income.

In our example, the employee has 400 share of stock with a basis of $8,000.  The very next day they sell all 400 shares when the stock is trading at $22 per share.  The employee has just created a capital gain of $800, which is the difference between their $8,800 sales price and $8,000 basis.  As they held the stock for less than one year between when they obtained it and sold it, the $800 gain will be reported on their tax return as a short term capital gain via Form 8949 or Schedule D (depending on if they had any other adjustments).

Special Consideration – Tax Withholding Choices
Sometimes when one is granted RSUs, they would like the employer to “withhold” some taxes to cover the amount that will be included on their W2 as compensation income.  Generally speaking those options will include:

  • Net Issuance – The employer will deduct a number of shares from your vested shares and give you the rest (broker remits net proceeds to employer, employer remits the value of the deducted shares to Government, money shows up as “withholding” on paycheck).
  • Same Day Sale – If you make this choice, you sell everything on the day of vesting. The employer will then withhold a portion of the proceeds as “withholding” and report them on your W2.
  • Sell To Cover – If you make this choice, or if you don’t have a choice, your employer sells just enough shares to cover the tax withholding. The key difference between Sell to Cover and Net Issuance is that the employer uses a broker in Sell to Cover but doesn’t use a broker in Net Issuance.